FORM 10-Q Page 1 of 14
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
---------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------------------- -----------------
Commission File Number 1-3437-2
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AMERICAN WATER WORKS COMPANY, INC.
- ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 51-0063696
- ------------------------------- -----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1025 Laurel Oak Road, Voorhees, New Jersey 08043
- ---------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(609) 346-8200
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(Registrant's telephone number, including area code)
Not Applicable
- ---------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
At May 1, 1997, the number of shares of common stock, $1.25 par value,
outstanding was 78,977,431 shares.
<PAGE> Page 2 FORM 10-Q
PART I FINANCIAL INFORMATION
----------------------------
Item 1. Financial Statements
-----------------------------
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
-----------------------------------------------------------
Consolidated Statements of Income and Retained Earnings (Unaudited)
(In thousands, except per share amounts)
<TABLE>
Three Months Ended
March 31,
1997 1996
-------- --------
<S> <C> <C>
CONSOLIDATED INCOME
Operating revenues $213,357 $198,189
-------- --------
Operating expenses
Operation and maintenance 100,753 100,644
Depreciation and amortization 25,057 21,542
General taxes 22,644 20,578
-------- --------
148,454 142,764
-------- --------
Operating income 64,903 55,425
Allowance for other funds used during
construction 1,404 3,637
Other income 109 283
-------- --------
66,416 59,345
-------- --------
Income deductions
Interest 35,618 32,698
Allowance for borrowed funds used
during construction (701) (2,628)
Amortization of debt expense 392 341
Preferred dividends of subsidiaries 889 912
Other deductions 861 345
-------- --------
37,059 31,668
-------- --------
Income before income taxes 29,357 27,677
Provision for income taxes 11,327 10,646
-------- --------
Net income 18,030 17,031
Dividends on preferred stocks 996 996
-------- --------
Net income to common stock $ 17,034 $ 16,035
======== ========
Weighted average shares of common stock outstanding 78,676 68,306
Earnings per common share on weighted average
shares outstanding $ 0.22 $ 0.23
======== ========
<PAGE> Page 3 FORM 10-Q
Three Months Ended
March 31,
1997 1996
-------- --------
<S> <C> <C>
CONSOLIDATED RETAINED EARNINGS
Balance at beginning of period $662,183 $622,061
Add - net income 18,030 17,031
Deduct - adjustment for 1996 two-for-one
stock split, in the form of a
100% stock dividend, on shares
issued during the period 0 480
-------- --------
680,213 638,612
-------- --------
Deduct - dividends
Preferred stock 882 882
Preference stock 114 114
Common stock - $.19 per share in 1997;
$.175 per share in 1996 14,912 11,902
-------- --------
15,908 12,898
-------- --------
Balance at end of period $664,305 $625,714
======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> Page 4 FORM 10-Q
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
-----------------------------------------------------------
Consolidated Balance Sheet (Unaudited)
(In thousands)
<TABLE>
March 31 December 31
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Property, plant and equipment
Utility plant - at original cost less
accumulated depreciation $ 3,481,548 $ 3,453,950
Utility plant acquisition adjustments 52,022 52,156
Non-utility property, net of accumulated
depreciation 32,465 31,302
Excess of cost of investments in
subsidiaries over book equity at
acquisition 22,693 22,690
----------- -----------
3,588,728 3,560,098
----------- -----------
Current assets
Cash and cash equivalents 10,359 12,974
Customer accounts receivable 64,416 67,293
Allowance for uncollectible accounts (1,164) (1,115)
Unbilled revenues 52,850 53,868
Miscellaneous receivables 5,755 4,787
Materials and supplies 11,991 11,063
Deferred vacation pay 12,218 10,400
Other 8,013 7,994
----------- -----------
164,438 167,264
----------- -----------
Regulatory and other long-term assets
Regulatory asset - income taxes
recoverable through rates 177,977 177,064
Debt and preferred stock expense 28,486 28,736
Deferred pension expense 19,290 18,340
Deferred postretirement benefit expense 11,771 11,852
Deferred treatment plant costs 8,272 8,388
Deferred water utility billings 6,041 6,808
Tank painting costs 10,070 10,224
Funds restricted for construction 6,267 5,791
Other 40,164 37,591
----------- -----------
308,338 304,794
----------- -----------
$ 4,061,504 $ 4,032,156
=========== ===========
<PAGE> Page 5 FORM 10-Q
March 31 December 31
1997 1996
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<S> <C> <C>
CAPITALIZATION AND LIABILITIES
Capitalization
Common stock $ 98,453 $ 98,027
Paid-in capital 305,522 298,448
Retained earnings 664,305 662,183
Unearned compensation (1,318) (784)
----------- -----------
Common stockholders' equity 1,066,962 1,057,874
Preferred stocks with mandatory redemption
requirements 40,000 40,000
Preferred stocks without mandatory
redemption requirements 11,673 11,673
Preferred stocks of subsidiaries with
mandatory redemption requirements 40,800 41,060
Preferred stocks of subsidiaries without
mandatory redemption requirements 6,284 6,279
Long-term debt
American Water Works Company, Inc. 116,000 116,000
Subsidiaries 1,614,867 1,600,394
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2,896,586 2,873,280
----------- -----------
Current liabilities
Bank debt 162,979 147,390
Current portion of long-term debt 30,788 57,144
Accounts payable 23,270 36,786
Taxes accrued, including federal income 28,548 10,803
Interest accrued 37,521 32,128
Accrued vacation pay 12,350 10,564
Other 34,515 40,155
----------- -----------
329,971 334,970
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<PAGE> Page 6 FORM 10-Q
March 31 December 31
1997 1996
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<S> <C> <C>
Regulatory and other long-term liabilities
Advances for construction $ 129,720 $ 129,466
Deferred income taxes 390,661 382,592
Deferred investment tax credits 37,058 37,345
Accrued pension expense 31,179 35,702
Accrued postretirement benefit expense 9,979 10,034
Other 8,833 4,081
----------- -----------
607,430 599,220
----------- -----------
Contributions in aid of construction 227,517 224,686
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Commitments and contingencies 0 0
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$ 4,061,504 $ 4,032,156
=========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> Page 7 FORM 10-Q
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
-----------------------------------------------------------
Consolidated Statement of Cash Flows (Unaudited)
(In thousands)
<TABLE>
Three Months Ended
March 31,
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 18,030 $ 17,031
Adjustments
Depreciation and amortization 25,057 21,542
Provision for deferred income taxes 7,275 5,135
Provision for losses on accounts receivable 1,825 1,023
Allowance for other funds used during
construction (1,404) (3,637)
Employee benefit expenses greater than
(less than) funding 46 (560)
Employee stock plan expenses 973 1,096
Deferred tank painting costs (214) (143)
Deferred rate case expense (835) (516)
Amortization of deferred charges 2,744 2,481
Other, net (1,812) 387
Changes in assets and liabilities,
net of effects from acquisition
Accounts receivable 133 3,568
Unbilled revenues 1,018 (2,700)
Other current assets (947) 1,431
Accounts payable (13,516) (22,978)
Taxes accrued, including federal income 17,745 9,857
Interest accrued 5,393 9,260
Other current liabilities (5,640) (1,553)
-------- --------
Net cash from operating activities 55,871 40,724
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (55,096) (38,144)
Allowance for other funds used during
construction 1,404 3,637
Water system acquisitions (125) (266,449)
Proceeds from the disposition of property,
plant and equipment 180 500
Removal costs from property, plant and
equipment retirements (1,256) (552)
Funds restricted for construction activity (476) 2,714
-------- --------
Net cash used in investing activities (55,369) (298,294)
-------- --------
<PAGE> Page 8 FORM 10-Q
Three Months Ended
March 31,
1997 1996
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<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt $ 19,000 $ 0
Proceeds from common stock 5,869 13,680
Net borrowings under
line-of-credit agreements 15,589 278,894
Advances and contributions for construction,
net of refunds 3,901 894
Debt and stock issuance costs (430) (5,051)
Repayment of long-term debt (30,883) (10,692)
Redemption of preferred stocks (255) (167)
Dividends paid (15,908) (12,898)
-------- --------
Net cash from(used in) financing activities (3,117) 264,660
-------- --------
Net increase(decrease) in cash and
cash equivalents (2,615) 7,090
Cash and cash equivalents at beginning
of period 12,974 23,717
-------- --------
Cash and cash equivalents at end of period $ 10,359 $ 30,807
======== ========
Cash paid during the period for:
Interest, net of capitalized amount $ 31,060 $ 21,770
======== ========
Income taxes $ 6,738 $ 5,758
======== ========
Common stock issued in lieu of cash in connection with the Savings Plan for
Employees and the Long-Term Performance-Based Incentive Plan totaled $2,046
in 1997 and $4,999 in 1996.
Debt and liabilities of $141 million and $5.9 million, respectively, were
assumed in connection with the Acquisition in 1996.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> Page 9 FORM 10-Q
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
-----------------------------------------------------------
Information Accompanying Financial Statements (Unaudited)
(In thousands, except share and per share amounts)
March 31 December 31
1997 1996
---------- -----------
Preferred stocks with mandatory redemption requirements
Cumulative preferred stock - $25 par value
Authorized - 1,770,000 shares
8.50% series (non-voting) - 1,600,000 shares
outstanding $ 40,000 $ 40,000
---------- -----------
$ 40,000 $ 40,000
========== ===========
Preferred stocks without mandatory redemption requirements
Cumulative preferred stock - $25 par value
5% series (one-tenth of a vote per share)
- 101,777 shares outstanding $ 2,544 $ 2,544
Cumulative preference stock - $25 par value
Authorized - 750,000 shares
5% series (non-voting) - 365,158 shares
outstanding 9,129 9,129
Cumulative preferential stock - $35 par value
Authorized - 3,000,000 shares 0 0
---------- -----------
$ 11,673 $ 11,673
========== ===========
The terms of the 8.50% preferred stock provide that all shares of the
series shall be redeemed on December 1, 2000.
Common stockholders' equity
Common stock - $1.25 par value
Authorized - 300,000,000 shares
Outstanding - 78,762,424 shares at March 31, 1997;
78,421,302 at December 31, 1996 $ 98,453 $ 98,027
Paid-in capital 305,522 298,448
Retained earnings 664,305 662,183
Unearned compensation (1,318) (784)
---------- -----------
$1,066,962 $ 1,057,874
========== ===========
During the first three months of 1997, 224,032 shares were issued in
connection with the Dividend Reinvestment and Stock Purchase Plan, 56,247
shares were issued in connection with the Savings Plan for Employees
and 60,843 shares were issued in connection with the Long-Term
Performance-Based Incentive Plan. At March 31, 1997, common shares
reserved for issuance in connection with the Company's stock plans were
60,923,162 shares for the Stockholder Rights Plan, 6,817,199 shares for the
Dividend Reinvestment and Stock Purchase Plan, 937,240 shares for the
Employees' Stock Ownership Plan, 258,714 shares for the Savings Plan for
Employees and 397,585 shares for the Long-Term Performance-Based Incentive
Plan.
<PAGE> Page 10 FORM 10-Q
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
-----------------------------------------------------------
Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts)
NOTE 1 -- Financial Statement Presentation
The information presented in this Form 10-Q is unaudited. In the opinion
of management the information reported reflects all adjustments, consisting
of normal recurring adjustments, which were necessary to a fair statement
of the results for the periods reported. Certain reclassifications have
been made to conform previously reported data to the current presentation.
NOTE 2 -- Acquisition
On February 16, 1996, the Company's subsidiary, Pennsylvania-American Water
Company, acquired the water utility operations of Pennsylvania Gas and
Water Company (now known as PG Energy Inc.) for $409,400. The acquired
operations, which include 10 water treatment plants and 36 reservoirs,
serve approximately 132,000 customers in northeastern Pennsylvania. The
acquisition was accounted for as a purchase, and the accompanying financial
statements reflect the results of operations of the acquired business
subsequent to the purchase date. The purchase price consisted of $262,500
in cash and the assumption of $146,900 of PG Energy Inc.'s liabilities,
including $141,000 of its long-term debt. The cash payment was funded with
short-term debt that was subsequently repaid with the proceeds from the
Company's 1996 common stock offering and a portion of the proceeds from
Pennsylvania-American's 1996 offering of $150,000 of 30-year, 7.8% General
Mortgage Bonds.
The unaudited pro forma results listed below were prepared as if the
acquisition and related offerings had occurred on January 1, 1996, and
include the historical results of the Company and of the acquired
operations. The unaudited pro forma information is not necessarily
indicative of the results of operations that might have occurred had the
acquisition actually taken place on the date indicated, or of future
results of operations of the combined entities.
Three months ended March 31, 1996
- ---------------------------------
Revenues $205,733
Net income 17,692
Earnings per common share $ 0.22
NOTE 3 -- New Accounting Standard
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings per Share" and Statement of Financial Accounting Standards No.
129, "Disclosure of Information about Capital Structure," were issued by
the Financial Accounting Standards Board requiring implementation for
periods ending after December 15, 1997.
Adoption of these statements effective December 31, 1997, is not expected
to have a significant effect on the financial statements of the Company.
<PAGE> Page 11 FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- --------------------------------------------------------------------------
Results of Operations
- ---------------------
Operating revenues for the first quarter of 1997 were 8% higher than for
the first quarter of 1996 due to the acquisition of regulated water
operations in northeastern Pennsylvania and authorized rate increases for
several subsidiaries. In the first quarter of 1997, the northeastern
Pennsylvania acquisition increased operating revenues by $6.9 million in
comparison to the first quarter of 1996.
During the first four months of 1997, three regulated subsidiaries received
rate orders which are expected to provide approximately $4.7 million in
additional annual revenues. Seven subsidiaries have rate increase
applications on file before regulatory agencies which, if granted in full,
would provide approximately $70.8 million in additional annual revenues.
A rate increase application pending for Pennsylvania-American Water Company
accounts for $41.4 million of the $70.8 million in requested additional
annual revenues awaiting decision. That request addresses the Company's
added investment in water service facilities since its last rate decision
including the northeastern Pennsylvania acquisition. A decision is
expected late in 1997.
The 55.9 billion gallons of water sold in the first quarter of 1997 were 2%
more than the 55.0 billion gallons sold in the first quarter of 1996. The
northeastern Pennsylvania acquisition added 1.7 billion gallons in water
sales volume in comparison to the first quarter of 1996.
Total operating expenses for the first quarter of 1997 were 4% higher than
a year ago. Operation and maintenance expenses were equal to last year.
Depreciation expense was higher due to growth in utility plant in service.
Higher general tax expense reflects higher property values and increased
gross receipts.
Income deductions increased by 17% in the first quarter of 1997 compared to
the same period last year. Interest expense rose by 9% to $35.6 million in
the first quarter of 1997 compared to the first quarter of 1996, primarily
due to an increase in total debt to fund construction of new water service
assets and the northeastern Pennsylvania acquisition.
The total allowance for funds used during construction recorded in the
first quarter of 1997 was 66% less than the first quarter of 1996. This
decrease was due to the completion of the Delaware River Regional Water
Treatment Plant in New Jersey which began operation in 1996.
Income taxes increased as a result of increased earnings in the first three
months of 1997 when compared to the first three months in 1996.
Net income to common stock was $17.0 million for the first quarter of 1997
compared with $16.0 million for the same period in 1996. First quarter
1997 results included three months of the northeastern Pennsylvania
acquisition as compared to one and one-half months for the same period
in 1996.
<PAGE> Page 12 FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (contd.)
- --------------------------------------------------------------------------
Capital Resources and Liquidity
- --------------------------------
All shares of common stock issued during 1997 have been the result of stock
issued in conjunction with the Dividend Reinvestment and Stock Purchase
Plan, the Savings Plan for Employees and the Long-Term Performance-Based
Incentive Plan.
During the balance of 1997, the Company plans to issue shares of common
stock through its Dividend Reinvestment and Stock Purchase Plan, the
Employees' Stock Ownership Plan and the Savings Plan for Employees.
Proceeds from the issuance of common stock will fund additional equity
investments in subsidiaries.
Three regulated subsidiaries issued $19.0 million of long-term debt during
the first four months of 1997. In addition, the Company invested
$5.4 million in the common stock of four subsidiaries. The proceeds from
these financing arrangements have been used to fund construction programs
and repay bank borrowings. It is anticipated that some subsidiaries will
sell long-term debt to institutional investors and common stock to the
Company during the remainder of 1997, with the proceeds used to repay bank
loans and fund construction projects.
<PAGE> Page 13 FORM 10-Q
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
A. Exhibits
--------
Exhibit number (27), Financial Data Schedule, is filed herewith
electronically.
B. Reports on Form 8-K
-------------------
No report on Form 8-K was filed by the registrant during the quarter ended
March 31, 1997.
<PAGE> Page 14 FORM 10-Q
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN WATER WORKS COMPANY, INC.
Date May 9, 1997 /s/ George W. Johnstone
- ---------------------- --------------------------------------
George W. Johnstone, President and CEO
(Authorized Officer)
Date May 9, 1997 /s/ Robert D. Sievers
- ---------------------- --------------------------------------
Robert D. Sievers, Comptroller
(Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> OPUR1
<CIK> 0000318819
<NAME> R. D. SIEVERS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,481,548
<OTHER-PROPERTY-AND-INVEST> 107,180
<TOTAL-CURRENT-ASSETS> 164,438
<TOTAL-DEFERRED-CHARGES> 268,174
<OTHER-ASSETS> 40,164
<TOTAL-ASSETS> 4,061,504
<COMMON> 98,453
<CAPITAL-SURPLUS-PAID-IN> 304,204
<RETAINED-EARNINGS> 664,305
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,066,962
80,800
17,957
<LONG-TERM-DEBT-NET> 1,730,867
<SHORT-TERM-NOTES> 162,979
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 30,788
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 971,151
<TOT-CAPITALIZATION-AND-LIAB> 4,061,504
<GROSS-OPERATING-REVENUE> 213,357
<INCOME-TAX-EXPENSE> 11,327
<OTHER-OPERATING-EXPENSES> 148,454
<TOTAL-OPERATING-EXPENSES> 159,781
<OPERATING-INCOME-LOSS> 53,576
<OTHER-INCOME-NET> 72
<INCOME-BEFORE-INTEREST-EXPEN> 53,648
<TOTAL-INTEREST-EXPENSE> 35,618
<NET-INCOME> 18,030
996
<EARNINGS-AVAILABLE-FOR-COMM> 17,034
<COMMON-STOCK-DIVIDENDS> 14,912
<TOTAL-INTEREST-ON-BONDS> 33,978
<CASH-FLOW-OPERATIONS> 55,871
<EPS-PRIMARY> .22
<EPS-DILUTED> 0
</TABLE>
